Deck 6: Firms and Production

Question 1

Which of the following is least likely to be considered a capital input?

A)a sewing machine
B)a tractor
C)a telephone
D)a ten dollar bill

Answer 1

a ten dollar bill

Question 2

Technological efficiency is

A)a necessary and sufficient condition for profit maximization.
B)a sufficient but not necessary condition for profit maximization.
C)a necessary but not sufficient condition for profit maximization.
D)a theoretical construct with little connection to the real world.

Answer 2

a necessary but not sufficient condition for profit maximization.

Question 3

What is one of the biggest differences between a sole proprietorship and a corporation?

A)Sole proprietorships offer stock.
B)Corporation shareholders elect the managers of the firm.
C)Sole proprietorships have limited liability.
D)Corporations are the only profitable firms.

Answer 3

Corporation shareholders elect the managers of the firm.

Question 4

The nonprofit or not-for-profit sector consists of organizations that

A)intend to earn a profit.
B)are always inefficient.
C)are primarily concerned with the welfare of their own employees.
D)typically pursue social or public interest objectives.

Question 5

A production function tells the firm

A)the maximum it can expect to produce with a given mix of inputs.
B)the average it can expect to produce with a given mix of inputs.
C)the minimum it can expect to produce with a given mix of inputs.
D)the average level of production for other firms in the industry.

Question 6

Only corporations benefit from limited liability.

Question 7

An organization that converts inputs (like Labor, Capital etc.)into output can be a

A)firm.
B)sole proprietorship.
C)corporation.
D)All of the above.

Question 8

In China, firms owned by the government are known as

A)state-owned enterprises (SOEs).
B)government enterprises.
C)corporations.
D)government owned partnerships.

Question 9

What do we mean by efficient production?

Question 10

With respect to production, the short run is best defined as a time period

A)lasting about six months.
B)lasting about two years.
C)in which all inputs are fixed.
D)in which at least one input is fixed.

Question 11

Economists typically assume that the owners of firms wish to

A)produce efficiently.
B)maximize sales revenues.
C)maximize profits.
D)All of the above.

Question 12

Efficient production occurs if a firm

A)cannot produce its current level of output with fewer inputs.
B)given the quantity of inputs, cannot produce more output.
C)maximizes profit.
D)All of the above.

Question 13

Firms maximize profit when

A)the additional benefit from producing a good equals the additional cost of producing that good.
B)MR = MC.
C)the derivative of the profit function with respect to output is zero.
D)All of the above.

Question 14

Production functions only apply to advanced economies.

Question 15

Limited liability is a benefit to

A)sole proprietorships.
B)partnerships.
C)corporations.
D)All of the above.

Question 16

In the long run, all factors of production are

A)variable.
B)fixed.
C)materials.
D)rented.

Question 17

Since 1999, the number of small state-owned enterprises (SOEs)in China has

A)decreased, but the large SOEs continue to hold a large proportion of industrialized assets.
B)increased, but large SOEs has decreased.
C)decreased along with the large SOEs.
D)remained unchanged.

Question 18

Which of the following statements best describes a production function?

A)the maximum profit generated from given levels of inputs
B)the maximum level of output generated from given levels of inputs
C)all levels of output that can be generated from given levels of inputs
D)all levels of inputs that could produce a given level of output

Question 19

Which entity produces the greatest proportion of U.S. gross national product?

A)government
B)non-profit organizations such as hospitals
C)firms
D)universities

Question 20

Which of the following inputs is easier to increase in the short run?

A)number of airplanes
B)size of the airport terminal
C)ticket-counter sales people
D)number of luggage carousels

Question 21

Explain why labor might not always be a variable input.

Question 22

The slope of the total product curve always equals

A)the ratio of the marginal product and the average product.
B)the change in input divided by the change in output.
C)the average product of the input.
D)the marginal product of the input.

Question 23

The above figure shows the short-run production function for Albert's Pretzels. The law of diminishing marginal productivity

A)appears with the second worker.
B)has not yet appeared for any of the levels of labor.
C)first appears with the fifth worker.
D)is refuted by this evidence.

Question 24

The above figure shows the short-run production function for Albert's Pretzels. The average product of labor

A)increases first and then decreases.
B)decreases first and then increases.
C)decreases throughout.
D)increases throughout.

Question 25

Jennifer is the only employee of her sole proprietorship. She is entertaining the idea of hiring an additional employee. She knows that on her own she can produce 100 units per day. Jennifer figures that Applicant A will help her produce 175 units per day whereas Applicant B will help her produce 155 units per day. Which of the following statements is most accurate?

A)Applicant B has a marginal product of 75 units.
B)Applicant B has an average product of 77.5 units.
C)Applicant A has a marginal product of 75 units.
D)Applicant A has an average product of 87.5 units.

Question 26

Total Product is

A)the change in total product resulting from an extra unit of labor, holding other factors constant.
B)the ratio of output to the number of workers used to produce that output.
C)the amount of output that can be produced by a given amount of labor.
D)equal to the marginal product of labor when the average product is increasing.

Question 27

The length of the short run is the same for all firms.

Question 28

The Average Product of Labor is

A)the change in total product resulting from an extra unit of labor, holding other factors constant.
B)the ratio of output to the number of workers used to produce that output.
C)the amount of output that can be produced by a given amount of labor.
D)equal to the marginal product of labor when the average product is increasing.

Question 29

The above figure shows the short-run production function for Albert's Pretzels. The marginal productivity of labor for the third worker is

A)6.
B)8.
C)24.
D)not known from the information provided.

Question 30

The Marginal Product of Labor is

A)the change in total product resulting from an extra unit of labor, holding other factors constant.
B)the ratio of output to the number of workers used to produce that output.
C)the amount of output that can be produced by a given amount of labor.
D)equal to the marginal product of labor when the average product is increasing.

Question 31

A typical professional National Football League team has three quarterbacks on its roster. What is one reason why they might not have a fourth quarterback?

A)The fourth quarterback's marginal product is approximately zero.
B)The fourth quarterback's marginal product is approximately ten.
C)The fourth quarterback's marginal product is less than the first quarterback's marginal product.
D)There is a law against carrying four quarterbacks on a team.

Question 32

Which situation is most likely to exhibit diminishing marginal returns to labor?

A)a factory that obtains a new machine for every new worker hired
B)a factory that hires more workers and never increases the amount of machinery
C)a factory that increases the amount of machinery and holds the number of worker constant
D)None of these situations will result in diminishing marginal returns to labor.

Question 33

If the marginal productivity of labor is constant for all levels of output, then the average productivity of labor

A)is constant.
B)equals the marginal productivity of labor.
C)Both A and B above.
D)Either A or B above but not both.

Question 34

If the average productivity of labor equals the marginal productivity of labor, then

A)the average productivity of labor is at a maximum.
B)the marginal productivity of labor is at a maximum.
C)Both A and B above.
D)Neither A nor B above.

Question 35

Thomas Malthus' prediction of mass starvation resulting from diminishing marginal returns has not been fulfilled because

A)the law of diminishing marginal returns did not hold in this case.
B)Malthus ignored other factors like technological change.
C)relative to Malthus' day, larger percentage of today's labor works in the agricultural sector.
D)All of the above.

Question 36

The above figure depicts a short-run production function for Albert's Pretzels. The marginal productivity of labor

A)rises then falls as the amount of capital increases.
B)falls then rises as the amount of labor increases.
C)is greater than or equal to the average productivity of labor for all amounts of labor.
D)is less than or equal to the average productivity of labor for all amounts of labor.

Question 37

Which of the following statements best summarizes the law of diminishing marginal returns?

A)In the short run, as more labor is hired, output diminishes.
B)In the short run, as more labor is hired, output increases at a diminishing rate.
C)In the short run, the amount of labor a firm will hire diminishes as output increases.
D)As more labor is hired, the length of time that defines the short run diminishes.

Question 38

The above figure shows the short-run production function for Albert's Pretzels. The marginal productivity of labor equals the average productivity of labor

A)for all levels of labor.
B)at none of the levels of labor.
C)only for the first worker.
D)only for the fifth worker.

Question 39

Joey cuts lawns during the summer. Let q equal the number of acres mowed per day, and let L equal the number of hours worked per day. Joey never works more than eight hours per day, and during that time his short-run production function is q = 0.2 ∗ L. Which of the following statements is FALSE?

A)Joey's marginal productivity equals his average productivity.
B)Joey's marginal productivity diminishes by 0.2 for each additional hour worked.
C)Joey's average productivity is constant.
D)Joey's marginal productivity is constant.

Question 40

Average productivity will fall as long as

A)marginal productivity is falling.
B)it exceeds marginal productivity.
C)it is less than marginal productivity.
D)the number of workers is increasing.

Question 41

Skateboards are produced according to the production function, q = 10K^0.25L^0.5 - L. At what quantity of labor does total product begin to decline given that capital is fixed at 16 units in the short-run?

A)L = 100
B)L = 10
C)L = 5
D)Not enough information is given.

Question 42

Suppose the production function for T-shirts can be represented as q = L^0.25K^0.75. Show that the marginal productivity of labor diminishes in the short run.

Question 43

Lectures in microeconomics can be delivered either by an instructor (labor)or a movie (capital)or any combination of both. Each minute of the instructor's time delivers the same amount of information as a minute of the movie. Which graph in the above figure best represents the isoquants for lectures in microeconomics when capital per day is on the vertical axis and labor per day is on the horizontal axis?

A)Graph A
B)Graph B
C)Graph C
D)Graph D

Question 44

Each additional worker produces two extra units of output until the first three units are produced for some production function. After the third unit is produced each additional worker produces one extra unit of output. What are the total product of labor, average product of labor and marginal product of labor for the first five units of production associated with this production function?

Question 45

Lectures in microeconomics can be delivered either by an instructor (labor)or a movie (capital)or any combination of both. Yet, it gets harder and harder to substitute more movies for an instructor the more movies are already used. Which graph in the above figure best represents the isoquants for lectures in microeconomics when capital per day is on the vertical axis and labor per day is on the horizontal axis?

A)Graph A
B)Graph B
C)Graph C
D)Graph D

Question 46

In the above figure, Graph D with Capital on the vertical axis and labor on the horizontal axis implies that

A)the marginal product of labor is increasing as more labor is employed.
B)the marginal product of labor is decreasing as more labor is employed.
C)the capital and labor are perfect substitutes.
D)capital and labor have to be employed in fixed proportions.

Question 47

If marginal productivity is decreasing as more labor is hired, then average productivity must be decreasing as well.

Question 48

Explain the difference between diminishing returns to labor and diminishing marginal returns to labor.

Question 49

The above figure shows the short-run production function for Albert's Pretzels. The average productivity of labor when the firm employs five workers is

A)6.
B)8.
C)24.
D)not known from the information provided.

Question 50

The above figure shows the short-run production function for Albert's Pretzels. Suppose the marginal productivity of labor for the sixth worker is 1. What is the total output produced by six workers?

A)29
B)30
C)31
D)Not known from the information provided.

Question 51

Describe the relationship between marginal productivity and average productivity. Use calculus or a graph to support your answer.

Question 52

The above figure shows the short-run production function for Albert's Pretzels. Suppose the marginal productivity of labor for the seventh worker is 2. What is the average output per worker when Albert's Pretzels employs seven workers by six workers?

A)5
B)6
C)7
D)Not known from the information provided.

Question 53

Consider the following short-run production function: q = 5L² - 1/3 L³. At what level of L do diminishing marginal returns begin? At what level of L do diminishing returns begin?

Question 54

The actual time length of the short run is determined by when diminishing marginal returns start.

Question 55

Skateboards are produced according to the production function, q = 10K^0.25L^0.5 - L. Given that capital is fixed at 16 units in the short run, what quantity of labor is needed to produce 36 units of output?

A)L = 4
B)L = 2
C)L = 25
D)L = 16

Question 56

At low levels of production, marginal productivity of labor increases as labor increases. At high levels of production, marginal productivity of labor decreases as labor increases. Are these two statements contradictory? Explain.

Question 57

At Joey's Lawncutting Service, a lawn mower cannot cut grass without a laborer. A laborer cannot cut grass without a lawn mower. Which graph in the above figure best represents the isoquants for Joey's Lawncutting Service when capital per day is on the vertical axis and labor per day is on the horizontal axis?

A)Graph A
B)Graph B
C)Graph C
D)Graph D

Question 58

A firm operating with diminishing total returns cannot be profit maximizing.

Question 59

For a linear production function, q = f(L,K)= 4L + 2K, what is the short-run production function given that capital is fixed at = 50?

A)q = 4L + 100
B)q = 4L + 50
C)q = 4L
D)q = 104

Question 60

Were it not for the law of diminishing marginal returns, we could grow the world's food supply from a flowerpot.

Question 61

Suppose the production of paved roadways can be represented as q = L^0.5 + K^0.5. Which of the following statements is (are)TRUE?

A)Labor is subject to diminishing marginal productivity in the short run.
B)Labor and capital are imperfect substitutes.
C)The isoquants for paved roadways are convex.
D)All of the above.

Question 62

Which graph in the above figure represents the isoquants where, as the amount of labor used increases and the amount of capital used decreases, the marginal product of labor rises when capital per day is on the vertical axis and labor per day is on the horizontal axis?

A)Graph A
B)Graph B
C)Graph C
D)Graph D

Question 63

Suppose that additional units of capital affect the marginal productivity of labor. This is not unrealistic. Word processors increase the marginal productivity of secretaries. On the other hand, robotic equipment can completely replace a worker and, thereby, lower the marginal productivity of labor. Given this possibility, determine the conditions under which isoquants will not be convex (i.e., concave).

Question 64

Suppose the production function for T-shirts can be represented as q = L^0.25K^0.75. Show that the isoquants for this function are convex.

Question 65

With capital on the vertical axis and labor on the horizontal axis, vertical isoquants imply that

A)capital and labor are perfect substitutes.
B)capital and labor must be used together in a certain proportion.
C)capital is not productive.
D)labor is not productive.

Question 66

One way to explain the convexity of isoquants is to say that

A)as labor increases and capital decreases, MP_L rises while MP_K falls.
B)as labor increases and capital decreases, MP_L falls while MP_K rises.
C)as labor increases and capital decreases, MP_L and MP_K both fall.
D)as labor increases and capital decreases, MP_L and MP_K both rise.

Question 67

What is the MRTS for a firm with the following production function , q = 200L^0.5K^0.5 with L = 4 and K = 16?

A)MRTS = -4
B)MRTS = -2
C)MRTS = -1
D)MRTS = -8

Question 68

An isoquant represents levels of capital and labor that

A)have constant marginal productivity.
B)yield the same level of output.
C)incur the same total cost.
D)All of the above.

Question 69

Isoquants that are downward-sloping straight lines imply that the inputs

A)are perfect substitutes.
B)are imperfect substitutes.
C)cannot be used together.
D)must be used together in a certain proportion.

Question 70

The slope of an isoquant tells us

A)how much output increases when both inputs are increased.
B)the increase in MP_L when capital increases.
C)the decrease in capital necessary to keep output constant when labor increases by one unit.
D)the decrease in capital necessary to keep MP_L constant when labor increases by one unit.

Question 71

How much labor does a firm require to produce q = 1000 when capital is fixed at 5 and they have a production function equal to q = 200L^0.5K^0.5?

A)L = 5
B)L = 2.5
C)L = 200
D)L = 2.25

Question 72

The steeper an isoquant is,

A)the greater is the marginal productivity of labor relative to that of capital.
B)the greater is the substitutability between capital and labor.
C)the greater is the need to keep capital and labor in fixed proportions.
D)the greater is the level of output.

Question 73

If inputs into production cannot be substituted for each other but have to be employed in fixed proportions isoquants are straight, downward-sloping lines.

Question 74

To say that isoquants are convex is to say that

A)the marginal rate of technical substitution falls as labor increases.
B)capital and labor are perfect substitutes.
C)labor, but not capital, is subject to the law of diminishing marginal returns.
D)there are constant returns to scale.

Question 75

L-shaped isoquants imply that production requires that the inputs

A)are perfect substitutes.
B)are imperfect substitutes.
C)cannot be used together.
D)must be used together in a certain proportion.

Question 76

Isoquants that are downward-sloping straight lines exhibit

A)an increasing marginal rate of technical substitution.
B)a decreasing marginal rate of technical substitution.
C)a constant marginal rate of technical substitution.
D)a marginal rate of technical substitution that cannot be determined.

Question 77

Suppose the production function for T-shirts can be represented as q = L^0.25K^0.75. When K = 1 and q = 2, what is the slope of the isoquant? If there is insufficient information to answer the question, describe what information is needed.

Question 78

Unlike indifference curves, isoquants can intersect.

Question 79

What is the MRTS for a firm with the following production function, q = 10L^0.5K^0.3?

A)MRTS = -
B)The firm will substitute a constant 3 units of capital for 5 units of labor.
C)The MRTS does not exist because labor and capital are perfect complements.
D)None of the above.

Question 80

How much capital does a firm require to produce q = 3200 when labor is 4 and they have a production function equal to q = 200L^0.5K^0.5?

A)K = 64
B)K = 8
C)K = 16
D)K = 25